Explaining the High Cost of US Health Care: No Skin in the Game

Costs are expensive because there is almost no skin in the game. Graft has taken over.

The Wall Street Journal has an interesting article on healthcare: Why Americans Spend So Much on Health Care—In 12 Charts.

The U.S. spends more per capita on health care than any other developed nation. It will soon spend close to 20% of its GDP on health—significantly more than the percentage spent by major Organization for Economic Cooperation and Development nations.

What is driving costs so high? As this series of charts shows, Americans aren’t buying more health care overall than other countries. But what they are buying is increasingly expensive. Among the reasons is the troubling fact that few people in health care, from consumers to doctors to hospitals to insurers, know the true cost of what they are buying and selling.

Contributions to employer-sponsored health coverage aren’t taxed, which makes it less expensive for companies to pay workers with health benefits than wages. Generous benefits lead to higher spending, according to many economists, because employees can consume as much health care as they want without having to pay significantly more out of their own pockets.

The prices of many medicines are hidden because pharmacy-benefit managers—the companies that administer drug benefits for employers and health insurers—negotiate confidential discounts and rebates with drugmakers.

Price Growth Since 2000

Hospitals are becoming more consolidated and are using their market clout to negotiate higher prices from insurers.

Tax Benefits

Contributions to employer-sponsored health coverage aren’t taxed, which makes it less expensive for companies to pay workers with health benefits than wages. Generous benefits lead to higher spending, according to many economists, because employees can consume as much health care as they want without having to pay significantly more out of their own pockets.

The tax benefit is the country’s biggest single income-tax break, costing billions to government revenue.

WSJ Misses the Big Picture

The charts are interesting but the WSJ misses the big picture: There is no incentive anywhere to reduce costs.

No Skin in the Game

Where the hell is "skin in the game"?

  • Those covered by Medicare have no skin in the game. And that is precisely why Medicare for All would be an abomination.
  • Those covered under company plans have little incentive to reduce costs. Once deductibles are met, there is "no skin in the game".
  • Lobbyists wrote Obamacare. The results speak for themselves.
  • Congress had a golden opportunity to allow drug imports but failed to act. Drug companies can charge what they want and insurers will pony up.
  • There is no right to refuse service. Hospitals take anyone and everyone whether or not they have insurance. As such, many don't have insurance. They have no skin in they game. Bankruptcy is a way out.
  • Massive amounts of money are wasted to keep terminal patients alive. Why? Because hospitals get paid by insurers. If hospitals didn't get paid, and had they had right of refusal, such nonsense would stop.
  • Obama himself: Obama dictated what had to be be in healthcare plans. They labeled them Gold, Silver, and Bronze. Lovely. Arguably they should have been called dumb, dumber, and dumbest. Why? Millennials and healthy people had to overpay to support everyone else. The millennials dropped out, just as free market principles would have dictated.

Let the Free Market Work

Please, let the free market work. Let insurers offer whatever plans they want. Let people buy whatever they want. And let those without insurance pay the price. I assure you, prices will plummet.

If you need a liver transplant and your insurance doesn't cover it. Sorry, you lose.

Costs for routine services will plunge because hospitals will not have to pay $200 for one aspirin to make up for the cost of an unpaid liver transplant.

Insurance plans ought to be able to force treatment overseas if someone is healthy enough to travel. A heart bypass operation in India is 10% of the cost here.

At a bare minimum, insurance companies ought to be able to offer such plans.

Personal Experiences - Stop and Smell the Lilacs

I seriously wonder if chemotherapy is more of a torture than a blessing. I watched my mom die in misery. The cost today is surely thousands of times higher. For what? To prolong someone's life for six months? At what cost? And who should pay?

When my mom stopped breathing, they asked my dad if he wanted them to try and revive her. He said no. Had he not been there, what would they have done? Why?

My wife, Joanne, died from ALS (Lou Gerhig's Disease). She was on extremely expensive drugs paid for under Medicare. Note that one does not have to be 65 to be under Medicare. Rather, Medicare picks up all costs on some terminal diseases.

Did those drugs do her any good? I doubt it. We also need to define "good". If they kept her alive for another three months (which I highly doubt), it was another three months of pain and suffering.

I sponsored a raffle for the benefit of the Les Turner ALS Foundation. And we put on a economic conference. John Hussman did a generous match of non-raffle proceeds. All told, we raised $500,000 for the Les Turner foundation.

This was an early post promoting the fund raiser: My Wife Joanne Has Passed Away; Stop and Smell the Lilacs

I am very proud of that, and also the amazing support from the Hussman Foundation.

That's skin in the game. Thanks again John!

Brass Tacks

We really need to get down to brass tacks.

Other countries seemingly have better healthcare because they control the cost of education, doctors fees, etc. They get cheaper drugs from the US than we have here.

Unless the US wants to control the cost of education, the cost of drugs, the cost of hospital care, and literally the cost of everything related, the US will not compare favorably to other countries.

Medicare for All cannot possibly work here, even if it "seems" to work elsewhere. I suggest we try the free market, not more Obamaism.

Mike "Mish" Shedlock

Comments
No. 1-25
Deter_Naturalist
Deter_Naturalist

Your dissatisfaction with market-based solutions is understandable, but I suspect you misunderstand how markets work.

You are correct, desire for life-prolongation is infinite, but there has to be some way to allocate resources. Mises irrefutably showed in 1922 (almost a century ago) that it is quite literally impossible to efficiently allocate resources in the absence of market-established prices. You can posit any "plan" you wish, but I doubt much that you can provide one that doesn't end up squandering an ever-growing share of (finite) capital.

Where we have problems in medical services is equality. Our current obsession with equality of access binds us to systems that simply don't work (in the current case, medical services and the systems to pay for them are a Black Hole, promising economic catastrophe sooner than later.) No one wants to accept that a poor person will (and should) receive a lower level of services than does a rich person. Somehow, people magically think that medical services are "different" from food, potable water, transportation or any other good that must be produced by someone. People say, "healthcare is a right" but how can "A" have a right to something that must be produced by "B" without "B" being "A's" slave?

The current system is unsustainable. It is based on "cost-plus" cartels, it has no means of discriminating between high value, low value and actually-harmful medical services and has no means of reining in the ridiculous costs of treatments (Hep C as the poster-child.) But Job #1 is to utterly destroy the collusion between hospital systems and insurers. Do that, and then see what happens.

Deter_Naturalist
Deter_Naturalist

Medical Services is a vast asset-stripping regime whereby Hospital Systems collude with Medical Insurers to price-fix and run guaranteed-income cartels.

Just as Universities simply use naive 18-23 year-old college students as a conduit to arrogate vast sums of money from lenders (who use the system to loot borrowers' first 15 years of adulthood), hospitals and insurers are increasingly using patients to simply loot employers, savers (patients whose assets can be seized to satisfy vast bills) and now even Social Security (recent reports show how much of an old person's SS now goes to Medicare "copays," and such.)

None of this is market-driven. None of it is voluntary. None of it is disciplined by competition. Instead we are treated to BS euphemisms like "evidence-based medicine" and endless commercials touting $40,000/yr biologics for eczema, the entire goal of which is to sift the population for patients (or hypochondriacs) with deep pockets or employer-paid (deep pocket) insurance (and the insurer gets paid cost-plus, so hitting their "forecasts" requires MORE BODIES, that's all.)

Step #1 should be to eliminate the legal cartels. Repeal all laws that interfere with free-market insurance contracts and rigidly enforce anti-trust and price-fixing laws against Aetna, BC/BS and all the others.

pgp
pgp

Mish is on track with most things but free market idealism can't fix health insurance costs. Clearly the cost of insurance is set by the care givers, who are free to charge as much as they can. A free market brimming with competition might help if those care givers were selling bread or household cleaning products but they are not, they're selling "life".

The desire for life and health goes beyond simply supply and demand economics. This truth is exemplified by the fact that people, even outside the USA, mortgage their houses to get hold of the life giving drugs and services their governments and hospitals haven't approved or don't yet provide.

Given infinite demand what incentive is there for pharmaceuticals to spend more to increase supply when they can simply charge as much as they want for the little they do produce.

On the other hand a society suffering more and more obesity or cancer increases demand for life saving or pain mitigating medicine, compounding an already distorted level of demand.

By Mish's own admission the quality of medicine is clearly weighted towards producing services and drugs for diseases that sell. Meanwhile research into the treatment of rare diseases like ALS has to rely on second class funding from fund raisers.

Nevertheless by attacking the obesity issue, for example, reduction of physical demand could have a slight positive effect on pricing. That means getting people to eat the right foods, as opposed to the fast-food or tv-dinner, sugar rich swill the food corporations would prefer to peddle.

Clearly however, the high emotional demand for dopamine inducing foods, like a desire to live without pain or live longer, can't be regulated by a freedom of commerce. The only way to stop people eating rubbish and getting sick is to regulate the food companies. Similarly regulating the medical industry by controlling prices and production or perhaps by making the Hippocratic oath legally binding, would help to keep prices in line with physical costs.

The bottom line is that governments, whose sole function is to police society NOT control it or offer support for profiteering, needs to protect people from the food producers, factory polluters and other industries making them sick while at the same time regulating to avoid price gouging and exploitation.

Societies problems are inevitably stem from deeper complications. And can't just be fixed with a band-aid. Superficial analyses like the one Mish offers in this article belong in the same bin as the other ineffectual government policy being proposed today.

gliderdude
gliderdude

Partially agree with article. Having some skin in the game is important. Unlimited medical care for free would be nuts as there needs to be cost benefit analysis to control expenses. But realize that it is over the head of the majority of consumers to intelligently shop for medical deals even if they would have the time to do so. The free market does not work if the consumer can not choose the best product. That is why the free market has failed in this area and instead has selected insurance companies that best filter out sick people and insure only the most healthy. That end point for healthcare is perverse and insane. If the USA was a civilized democracy, it would provide a limited base level of Medicare for All. And the wealthy would be able to purchase any extra insurance they desire. Instead we have a corporate oligarchy that somehow finds it more valuable to update our nukes and spend unlimited sums on an ill defined unwinnable wars on terror that promote an endless spiral of blowback. I doubt our forefathers had any concept of how badly their conception would turn out.

Our "leaders" plan is quite simple. Lower taxes on the rich, increase spending on the military, police, security, etc. Then after the deficits go out of control use that to cut benefits to lower-middle class, and as necessary print money and produce inflation which is in effect a flat tax that targets those that need to spend most of their income for survival.

everything1
everything1

Drug imports are spilling into the country, 70% comes from India, markup is about 3000% though. Oh their are ways, once you learn them. Oh, lol, they refuse service alright, with a myriad of tricks. Doctors are coached, and outnumbered by administrators 10 to 1. Keep in mind America is the sickest country on the planet, #1 for heart disease, cancer, auto-immune, and the third leading cause of death is iatrogenic or death by doctor. What you need to understand Mish is that we sell the disease and the elixir. We see commercials on TV, insurers and health care groups taking turns bad mouthing each other, see it's the insurance companies who are actually turning the screws now, they decide what the doctors do, how they do it, and who gets what. It's a hard pill to swallow when your health care system is ranked about 38th among developed nations, and dead last among the commonwealth. I just hired an independent IFM, cost me thousands but could save me hundreds of thousands in the future because her game is root cause diagnosis majoring in nutrition and lifestyle science. It's not about reducing costs, it's about healing, they are not healers, the U.S. health care system thrives on sickness, their is no money in wellness, only sickness pays. Go to a socialized health care country oh they are all better than ours, ask about insurance, deductible or co-pays, they don't know what those things are! A friend in a forum I frequent reached out last week with some kind of health issue, refused to see a doctor, don't have the $, I said you call me on Sunday to go over symptoms, to busy!, he died that day!!! He was a good man!!!!!

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